Looking ahead, analysts say N.J.'s budget woes may be far from over

TRENTON — After a grueling state budget season and a tough fight over property tax caps, Gov. Chris Christie has been making a national splash by saying he is making good on his promise to end the reckless fiscal decisions of governors past. He also boasts of having closed an $11 billion budget gap without raising taxes.

Despite such optimistic talk, New Jersey’s budget woes may be far from over.

Budget analysts say the austere $29.4 billion spending plan did not erase the state’s long-standing fiscal problems, and the Republican governor will likely face another multibillion dollar deficit and another tough budget next year.

"These are long-term issues facing the state," said Richard Keevey, a top Christie economic adviser and Rutgers University scholar. "You name it, we have demands and commitments out there far exceeding the existing revenue base in the state. The governor is saying, ‘I need to bring things into balance.’ This is his first attempt."

While the Christie administration has not publicly released projections that a new deficit will open up, spokesman Michael Drewniak acknowledges the state faces challenges.

An analysis released Thursday by Wells Fargo said New Jersey’s state finances are still "tenuous."

"As (federal) stimulus winds down and economic growth slows … we expect additional gaps to emerge and more cuts to likely be in the works," the report said. "The Garden State could have a long and arduous road to economic sustainability."

The disappearance of the federal aid will make next year more difficult for New Jersey, though rising revenues might help offset the pain, said Charles Steindel, an economist with the Federal Reserve Bank of New York.

"Obviously if the revenues don’t grow rapidly and you’re losing federal aid, this means you have problems, and these problems could be in the billions," said Steindel, who stressed he couldn’t predict the size of the deficit.

With states across the nation dealing with deficits, Drewniak acknowledged the governor did not erase years of budget problems in his first six months.

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Gov. Christie looks to the future at budget signing Gov. Chris Christie signed his first budget into law on Tuesday. The Republican governor's $29.4 billion spending plan was passed by the Democrat-controlled Legislature early Tuesday morning. Christie's budget rejected major tax increases and cut 2.2 percent of state spending. After signing the bill Christie talked about what happens next. (Video by Adya Beasley / The Star-Ledger)

Chris Christie signs N.J. budget into law

Chris Christie signs N.J. budget into lawGov. Chris Christie signed his first budget into law on Tuesday. The Republican governor's $29.4 billion spending plan was passed by the Democrat-controlled Legislature early Tuesday morning. Christie's budget rejected major tax increases and cut 2.2 percent of state spending. (Video by Adya Beasley / The Star-Ledger)

"There’s no escaping the fact that we’re in a transitional period, and some of the decisions are less savory than others," Drewniak said. "When things were allowed to get this bad, there’s no such thing as instant gratification."

TAKING CREDIT

The governor was not shy about pitching his first budget, making the rounds on national cable talk shows.

"We passed a budget that cuts $11 billion from our state’s budget, balances it without any new tax increases on the people of the state of New Jersey," he said on CNBC’s Squawk Box. "We have closed the 37 percent budget deficit, the largest by percentage in the nation, while at the same time cutting $90 million in business taxes to try to spur some economic growth in the state."

Critics dispute Christie’s statements, including the claim of cutting $11 billion from the budget.

"That’s a nice talking point, but it’s absolutely untrue," said Patrick Murray, director of polling at Monmouth University. "There are a lot of legal obligations that the state has that the governor just simply ignored."

Actual spending, including federal stimulus money, is slated to drop $2.8 billion — including cuts to rebates and programs that drew months of protests and the Statehouse’s largest rally ever. But budget analysts say the $11 billion deficit was closed largely by avoiding massive costs.

PAYMENT SKIPPED

The budget skipped a $3.1 billion payment to the pension fund, continuing a decade-long pattern Christie had criticized, and, administration officials concede, creating a bigger cost next year. He did not pay $1.7 billion to schools under the state’s formula for education aid. In the past, the state Supreme Court ordered extra school payments, but did not this year.

Deborah Howlett, executive director of the left-leaning New Jersey Policy Perspective, said people will pay higher taxes because of higher hospital taxes, a smaller tax credit for the working poor and cuts in state aid to schools and towns. Drewniak said Christie does not accept that premise, and that comments from Howlett, who worked for former governor Jon Corzine, should be taken with a "healthy degree of skepticism."

On Christie’s other assertions, two reports this year, from the National Conference of State Legislatures and the Center for Budget and Policy Priorities, said Nevada and Illinois had higher budget deficits than New Jersey as a percentage of total budget. And the business tax he mentioned was actually a one-year increase that expired before Christie took office.

The Change

Joseph Seneca, a professor of public policy and economics at Rutgers, said Christie came to Trenton after a decade of Band-Aid fixes forced deficits to grow, and the state budget "became a treadmill that ran ever faster to stay still."

Christie’s break from the recent past, Seneca said, was that he did not increase major taxes, instead nixing a Democratic bill to raise income taxes on millionaires.

While a rebounding economy could provide more tax dollars for the budget and the Treasury Department predicts revenues will grow for the first time in two years, Keevey, the Christie adviser, said pension, health care, Medicaid and school expenses will increase again.

"It’s hard to know," Drewniak said, when asked about next year’s deficit. "So much of what we do here depends on our revenue stream, but we don’t expect that we’re going to be flush with cash in the following year."

The fiscal year has already gotten off to a rocky start. Just as lawmakers were getting set to vote on the budget, their counterparts in Washington signaled they were unwilling to provide the more than $500 million in the Medicaid funding New Jersey is counting on. If Congress does not vote to send the money to the states, Christie may have to cut the budget again. And next year may be every bit as contentious and painful as this year.